Tax Avoidance: Apple Story

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Apple_logo_black.svgThe USA congress is stating that Apple is using sophisticated tax arrangements to avoid paying fair taxes in the USA. CEO of Apple is to testify before the USA Congress regarding the company’s tax arrangements. Apple has used Ireland, a low tax jurisdiction, to set up a holding brass plate company to receive dividends from other subsidiaries located in low tax jurisdictions. Overall, the Ireland based holding company has received about US$30bn for the period from 2009 to 2012. This represents about 30% of Apply profit for the above stated period. Apple has used classic tax planning strategies by setting up a holding company in a jurisdiction where inward and outward dividends are taxed at a reduced tax rate under a double tax agreement signed between countries in order to avoid double taxation of income and transfer pricing which leaves a big chunk of profit in a low tax jurisdiction. Google is another company which is under pressure in the UK for allegations of tax avoidance. Both companies are saying that they are not doing anything illegal. The USA and the UK are looking for any possible way to fill their coffers as stagnating economies cannot sustain existing social welfare and military budgets. Once the tax affairs of those two big companies are sorted out, there is a risk that smaller companies can be targeted soon.